What’s in Your Wallet?...

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Just when you thought you could forget about Bitcoin…it’s back. Bitcoin is a digital currency that is free from any influence by central banks. Libertarians like it for it’s independent, secure and untraceable features. But for a whole slew of reasons Bitcoin has not taken off as a medium of exchange.

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One problem is volatility. The price of Bitcoins soared in 2017 only to crash a year later. When you have crypto currency in your ‘wallet’ and you are ready to buy something, you want it to have a stable value. It doesn’t. Facebook will use the proceeds from selling ‘Libras’ (its cryptocurrency) to purchase Government securities insuring the full backing of the currency and tying its value to a basket of world currencies. The cost to make purchases or transfer funds should be much cheaper than the 2-10% you pay Western Union or MoneyGram today. Facebook touches about a third of the entire world population today and the prospect of Libra users ‘facebooking, instagraming, what’s apping’ and then, shopping and transferring money, all on one site, is a business worth drooling over. The Chinese have already designed a system like this (Tencent’s WeChat and Alibaba’s Alipay), where users stay all day, texting, surfing the internet, playing video games and shopping. Facebook wants its share of the action.

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Banking the unbanked has also been a success in places you might not expect. In Kenya, the phone companies saw plenty of commerce but few ways to move money around. So, they designed M-Pesa where you load balances on your cell phone and text money to creditors who can convert to cash at small convenience shops or send the money on to other creditors. The phone companies suddenly become banks. Facebook is looking to do the same.

This is a slam dunk, right? Not so fast. Big hurdles await Mr. Zuckerberg. The first is the issue of privacy. The public is not too excited about all the information Facebook has accumulated already and sold to others. Do we really want to give them more information? Secondly, governments around the world are not too excited about an alternate monetary powerhouse developing. Is it a bank, is it a payment system (ala Visa or Mastercard), and since it is anonymous, what about the criminal money transfer aspect to the platform?

We don’t know if Libra will get off the ground, but disruption is coming quickly to the money business. Commerce will get cheaper and more efficient, but the price we pay may be the continued erosion of our precious personal freedoms. Caveat Emptor.